On my blog this week, I have talked about evaluating land and houses for flipping. While I am not big into flipping commercial properties – mainly because it’s hard to set up a system for doing so – every now and then a deal will come across my desk and I’ll look into it.
For example, I just recently did a deal where I had a commercial property under contract that somebody was giving to us for $15,000. In pristine condition it is worth close to $1 million. Now, this thing was not in a pristine condition – there had been a fire inside, some parts didn’t even have a roof, there were squatters living in it, it was a pretty bad piece of property.
But at $15,000 – and even with $100,000 of back taxes owed – the thing still looked like a deal. So I put it under contract, asked for a 60-day closing, and we went looking for a buyer. Because it is an odd deal, there’s only so many buyers for these odd kind of deals. After looking for nearly 2 months we finally found a buyer for that deal. We were making $30,000 in the process, so it was worth it, but at the same time the amount of effort involved in such an outside of the cookie-cutter model deal kind of made us question “was it worth the $30,000?”
But in case you come across a great opportunity to invest in a commercial property, feel free to go for it if the numbers make sense. Also, get as much information as you can. There is even some overlap with evaluating houses. For example:
- Can you find reliable comps for the building?
- How much repair work does the building need?
Then there are some questions unique to commercial properties:
- Has the site suffered any sort of contamination from past owners?
- What kind of businessperson needs a site like the one you have come across?
And in this situation, I would recommend doing the same thing that my wife Michelle and I did: use an option agreement and line up a buyer.
That way your money isn’t on the line and you won’t be stuck paying taxes on a lot you’ll never use yourself.